Month-In-Review: July 2024

As expected, the Fed opted to hold rates steady in July but opened the door to a potential reduction in September, should incoming data give policy makers the needed confidence of a sustainable disinflationary trend. Despite stopping short of a commitment to a rate reduction in the coming weeks, investors nevertheless are pricing in as many as four potential 25bp cuts by year-end with some calling for a larger 50bp reduction to start, or even an “emergency” reduction ahead of next month’s FOMC meeting. After all, the latest July employment report, with headline hiring falling short of expectations and an uptick in the unemployment rate, buoyed investors’ concerns the Fed is falling behind the curve and more precipitous weakness is on the horizon. As a result, equity market volatility picked up while longer-term yields dropped markedly, with the 10-year falling 37bps for the month to 4.03%, a six-month low.

Market Activity and Commodities

·       Equities – Stocks ended mixed in July. Beginning at 5,460.48, the S&P 500 rose 1.1% in July, closing at 5,522.30 after hitting an all-time high on July 16. The Dow, meanwhile, rose 4.4%, increasing from 39,118.86 to 40,842.79 in July after reaching an all-time high on July 17. On the other hand, the Nasdaq fell 0.8% in July, closing at 17,599.40 after hitting an all-time high on July 10. Since the start of the year, the S&P 500 is up 15.8%, the Nasdaq gained 17.2% and the Dow rose 8.4%.

·       Treasuries – Treasury yields declined in July after falling in June. The 2-year Treasury yield closed out July at 4.26%, down 50bps since June’s close. The 10-year Treasury yield, meanwhile, dropped 37bps from 4.40% to 4.03% in July.

·       Commodities      

o   (Jul 31) – Oil prices declined for the month of July following two consecutive monthly gains. WTI fell 3.7% in July to $78.54 a barrel.

National Growth and Outlook

• NFIB Small Business Optimism (Jul 9) – The NFIB Small Business Optimism Index unexpectedly rose one point to 91.5 in June, the third consecutive monthly rise and a six-month high. According to the median forecast, the index was expected to decline to a reading of 90.2. At 91.5, however, this is well below the pre-pandemic average of 103.0.
• Leading Index (Jul 18) – The Leading Index declined 0.4% in May, greater than the 0.3% decrease expected and following a 0.4% drop the month prior.

·       Chicago Fed National Activity Index (Jul 22) – The Chicago Fed National Activity Index declined from 0.23 to 0.05 in June. According to the median forecast, the index was expected to drop to -0.09. The Chicago Fed Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In June, 42 of the 85 monthly individual indicators made positive contributions, while 43 made negative contributions.

·       GDP (Jul 25) – GDP rose 2.8% on an annualized basis in the preliminary Q2 report, surpassing the 2.0% gain expected and a two-quarter high. The four-quarter average, meanwhile, rose from 2.9% to 3.1%. In the details of the report, personal consumption rose 2.3% in the preliminary Q2 report, more than the 2.0% gain expected and the largest gain in two quarters. Goods consumption rose 2.5%, due a 4.7% gain in durables consumption and a 1.4% increase in nondurables consumption. Services consumption, meanwhile, rose 2.2%, down from a 3.3% increase in the first quarter. Gross private investment, a gauge of business spending, increased 8.4%, the largest gain since Q3 2023. Fixed investment rose 3.6% in the first-round Q2 report, the smallest quarterly gain since Q4 2023. Nonresidential investment – including office buildings and factories – increased 5.2%, the most in a year, due to an 11.6% jump in equipment investment, and a 4.5% gain in intellectual property investment. Structures investment, however, fell 3.3% in the preliminary Q2 report, the largest quarterly decline since Q4 2021. Residential investment, meanwhile, fell 1.4%, the largest quarterly decline in a year. On the trade side, exports rose 2.0%, while imports increased 6.9% in the preliminary Q2 report, the most since Q1 2022. Finally, government consumption climbed 3.1%. Federal spending increased 3.9%, due to a 5.2% gain in national defense spending and a 2.2% increase in nondefense spending. State and local spending, meanwhile, rose 2.6%, the weakest pace in two years.

Employment

• JOLTS (Jul 2) – According to JOLTS – the Job Openings and Labor Turnover Survey – the number of job openings unexpectedly rose from 7.92M to 8.14M. According to the median forecast, there were 7.95M expected job openings. As of May, the job openings rate rose from 4.8% to 4.9% with 1.2 available jobs for each unemployed person, down from a near-term peak of 2 in 2022. Additionally, the quits rate – a measure of people who voluntarily leave their job – remained at 2.2% for the seventh consecutive month. (Jul 30) – According to JOLTS – the Job Openings and Labor Turnover Survey – the number of job openings fell from 8.23M (revised up from 8.14M) to 8.18M, a two-month low. According to the median forecast, there were 8.0M expected job openings. As of June, the job openings rate remained at 4.9% with 1.2 available jobs for each unemployed person, down from 1.4 at the start of the year. Additionally, the quits rate – a measure of people who voluntarily leave their job – remained at 2.1% for the seventh consecutive month.
• ADP Private-Sector Employment Report (Jul 3) – ADP reported that private-sector employment rose by 150k in June, in line with the 152k rise expected, albeit the weakest increase since the start of the year. The three-month average, meanwhile, declined from 185k to 167k, the lowest since March. (Jul 31) – ADP reported that private-sector employment rose by 122k in July, falling short of the 150k gain expected and the smallest increase since January. The three-month average, meanwhile, declined from 167k to 145k, the lowest since the start of the year. According to the report, those who changed jobs received a 7.2% pay increase, down from 7.7% the month prior, while those who stayed at their current position saw a 4.8% pay gain, down slightly from 4.9% in June.
• Initial Jobless Claims (Jul 3) – Initial jobless claims rose 4k to 238k in the week ending June 29, a two-week high. The four-week average increased from 236k to 239k. Continuing claims, or the total number of Americans claiming ongoing unemployment, rose to 1.86M in the week ending June 22, the highest since November 2021 and the ninth consecutive weekly increase. (Jul 11) – Initial jobless claims fell 17k in the week ending July 6, the lowest since May. The four-week average, meanwhile, declined from 239k to 234k. Continuing claims, or the total number of Americans claiming ongoing unemployment, fell from 1.83M to 1.84M in the week ending June 29. (Jul 18) – Initial jobless claims rose 20k from 223k to 243k in the week ending July 13, the largest increase since early May. The four-week average, meanwhile, rose from 234k to 235k. Continuing claims, or the total number of Americans claiming ongoing unemployment, increased from 1.85M to 1.87M. (Jul 25) – Initial jobless claims fell 10k to 235k in the week ending July 20, a two-week low. The four-week average, however, ticked up from 235k to 236k. Continuing claims, or the total number of Americans claiming ongoing unemployment, declined from 1.86M to 1.85M in the week ending July 13, the lowest in two weeks.
• Nonfarm Payrolls (Jul 5) – Nonfarm payrolls rose by 206k in June, surpassing the 190k gain expected according to Bloomberg, albeit the weakest gain in two months. The three-month average, meanwhile, fell from 212k to 177k as a result of downward revisions to earlier data. May payrolls were revised down from a 272k gain to a lesser 218k increase. Couple with additional downward revisions to previous months, the overall change in nonfarm payrolls (June data + net revisions) was just 95k, the weakest monthly pace since December 2020. In the details, private payrolls rose by 136k in June following a 193k gain in May. Goods-producing payrolls increased by 19k, due to a 27k gain in construction payrolls. Manufacturing payrolls, however, fell 8k in June. Private service producing payrolls rose by 117k in June following a 181k gain in May. Education and health payrolls led the gain in June, rising 82k, in line with the 81k gain the month prior. Trade and transport payrolls climbed 14k, despite a 9k drop in retail trade payrolls, financial payrolls rose 9k, and leisure and hospitality payrolls increased 7k in June. Also, information payrolls gained 6k, the largest monthly gain since the start of the year. On the weaker side, professional and business services payrolls fell 17k, due to a 49k drop in temporary help payrolls, the fifth consecutive monthly drop. Finally, government payrolls rose by 70k in June following a 25k gain in May.
• Participation Rate (Jul 5) – The labor force participation rate ticked up from 62.5% to 62.6% in June, as expected and a two-month high.
• Unemployment Rate (Jul 5) – Household employment rose by 116k in June, the most in three months. The labor force, meanwhile, increased by 277k following a 250k decline in May. Thus, the unemployment rate unexpectedly ticked up from 4.0% to 4.1% in June, the highest since November 2021. According to the median forecast, the unemployment rate was expected to remain at 4.0% for a second consecutive month.
• Average Hourly Earnings (Jul 5) – Average hourly earnings rose 0.3% in June, as expected and following a 0.4% increase in May. Year-over-year, wages rose 3.9%, down from a 4.1% gain in May and a two-month low.
• Average Weekly Hours (Jul 5) – The average workweek remained at 34.3 hours in June for the third consecutive month.

Consumer Activity and Confidence

• Vehicle Sales (Jul 3) – Vehicle sales fell from 15.90m to a 15.29m unit pace in June, a five-month low. Over the past 12 months, vehicle sales dropped 4.8%, the largest annual decline since July 2022.
• Consumer Credit (Jul 8) – Consumer credit rose by $11.4b in May, the largest gain in three months and following a $6.5b gain the month prior. According to the median forecast, consumer credit was expected to rise by $8.9b. In the details of the report, revolving credit – including credit cards – rose by $7b, and non-revolving credit, which includes vehicles and school tuition, rose by $4.3b in May.

·       Retail Sales (Jul 16) – Retail sales were flat (0.0%) in June following an upwardly revised 0.3% increase the month prior. According to the median forecast, retail sales were expected to decline 0.3%. Year-over-year, retail sales rose 2.3% in June, the smallest annual gain in four months. Car sales fell 2.0% in June following a 1.0% gain the month prior, while gasoline stations sales dropped 3.0% in June, the second consecutive monthly decline. Excluding autos, retail sales rose 0.4% in June, the most in three months, and climbed 3.4% over the past 12 months. Excluding autos and gasoline, retail sales rose 0.8% and increased 3.8% year-over-year. Finally, excluding food, autos, building materials and gasoline station sales, control group sales rose 0.9% in June, the most in three months, and gained 4.1% over the past 12 months, the largest annual increase in three months. In the details of the report, non-store retailer sales increased 1.9%, building materials sales rose 1.4%, and health and personal care sales gained 0.9% in June. Also, clothing sales increased 0.6%, and furniture sales also rose 0.6% in June. Additionally, electronics sales rose 0.4%, as did general merchandise sales with a similar gain in department store sales, miscellaneous sales increased 0.3%, eating and drinking sales gained 0.3%, and food and beverage sales rose 0.1% in June following a 0.2% decrease the month prior. On the other hand, sporting goods sales fell 0.1% at the end of the second quarter following a 1.7% gain in May

• University of Michigan Consumer Sentiment (Jul 12) – The University of Michigan Consumer Sentiment Index unexpectedly fell from 68.2 to 66.0 in the preliminary July report, an eight-month low. According to the median forecast, the index was expected to rise to a reading of 68.5. In the details of the report, a gauge of current conditions fell from 65.9 to 64.1, and a gauge of future expectations declined from 69.6 to 67.2 in the preliminary July report, the lowest reading since November. (Jul 26) – The University of Michigan Consumer Sentiment Index was revised up from 66.0 to 66.4 in the final July report, albeit still marking the fourth consecutive month of waning momentum and an eight-month low. In the details of the report, a gauge of current conditions was revised down from 64.1 to 62.7, the lowest reading since December 2022, while a gauge of future expectations was revised up from 67.2 to 68.8 in the final July report, a two-month high.
• Consumer Spending and Income (Jul 26) – Personal income rose 0.2% in June, falling short of the 0.4% gain expected and following a 0.4% increase in May. Consumer spending, meanwhile, increased 0.3% in June, as expected and following a 0.4% rise in May. Year-over-year, consumer spending increased 5.2%, a two-month low, while personal income rose 4.5% in June, in line with the annual increase in May. Adjusting for inflation, real consumer spending rose 0.2%, and real income gained 0.1% in June following a 0.3% increase the month prior. Over the past 12 months, real spending rose 2.6% for the second consecutive month, while real disposable personal income gained 1.9%, a five-month high.
• Consumer Confidence (Jul 30) – Consumer confidence, according to the Conference Board, rose from 97.8 (revised down from 100.4) to a reading of 100.3 in July, a two-month high. According to the median forecast, a reading of 99.7 was expected. In the details of the report, a gauge of current conditions fell from 135.3 to 133.6, the lowest reading since April 2021. A gauge of future expectations, however, rose from 72.8 to a reading of 78.2 in July, a six-month high.

Inflation

• CPI (Jul 11) – The CPI (Consumer Price Index) unexpectedly fell 0.1% in June, the first monthly decline since May 2020. According to the median forecast, the CPI was expected to rise 0.1% at the end of Q2. Year-over-year, consumer prices rose 3.0%, a tenth of a percent point below expectations and down from the 3.3% annual increase in May. Food prices rose 0.2%, while energy prices dropped 2.0% in June following a similar decline in May. Thus on the consumer side, the majority of the improvement appears to be concentrated in energy costs. Excluding energy, the CPI rose 0.1% in June and 3.1% over the past 12 months, the smallest annual gain since April 2021. Excluding food and energy costs, the core CPI rose 0.1% in June, a tenth of a percentage point less than expected and the smallest monthly increase since August 2021. June’s 0.1% rise marks the third consecutive month of cooling. Year-over-year, the core CPI increased 3.3%, also a tenth of a percentage point lower than expected and the slowest pace in more than three years. In the details of the report, medical care prices climbed 0.2%, as did shelter prices with a 0.3% gain in the OER. Also, other goods and services costs rose 0.6%, and recreation prices increased 0.1% in June following a 0.2% decline the month prior. On the other hand, transportation prices fell 1.3%, due to a 0.2% decline in new vehicle prices and a 1.5% drop in used cars and trucks prices. Additionally, airline fares declined 5.0%, marking the fourth consecutive month of a decline. Additionally, commodities prices slipped 0.4% in June, and education and communication prices fell 0.1%. Another iteration of inflation, the supercore – defined as core services excluding housing – declined 0.1% in June following no change (0.0%) the month prior. Over the past 12 months, the supercore increased 4.6%, down from the 4.7% annual increase in May.
• PPI (Jul 12) – The PPI (Producer Price Index) rose 0.2% in June, a tenth of a percentage point more than expected and following no change (0.0%) the month prior (revised up from a 0.2% decline). Year-over-year, producer prices rose 2.6% in June, up from the 2.4% annual gain in May and marking the largest annual increase since March 2023. Excluding food and energy costs, the core PPI rose 0.4%, double the 0.2% increase expected and following a 0.3% rise in May (revised up from no change (0.0%). Year-over-year, the core PPI increased 3.0% in June, up from the 2.6% annual gain in May and the largest annual increase since April 2023. Additionally, services costs rose 0.6%, due to a 1.9% rise in trade costs. Transportation and warehousing costs, however, fell 0.4% in June. Parsing through the volatility of the details, the majority of the rise appears to be concentrated in margin adjustment last month. According to the Bureau of Labor Statistics (BLs) release, “Nearly all the June increase is attributable to a 1.9-percent jump in margins for final demand trade services.”
• PCE (Jul 26) – The Personal Consumption Expenditures (PCE) Index rose 0.1% in June, as expected and following no change in May. Year-over-year, headline inflation increased 2.5%, in line with expectations and down from a 2.6% annual increase in May. Excluding food and energy, the core PCE rose 0.2% in June, as expected and up from a 0.1% gain in May. Over the past 12 months, core inflation increased 2.6% for the second consecutive month, slightly more than the 2.5% gain expected. Stripping out even more of the volatility, the supercore – or core services excluding housing – rose 0.2% in June, matching the monthly gain in May, and 3.4% year-over-year, down from the 3.5% annual gain in May.

Manufacturing and Production Activity

• ISM Manufacturing (Jul 2) – The ISM Manufacturing Index unexpectedly fell for the third consecutive month from 48.7 to 48.5 in June, a seven-month low. According to the median forecast, the index was expected to rise to a reading of 49.1. In the details of the report, new orders increased from 45.4 to 49.3, a three-month high, and supplier deliveries rose from 48.9 to a reading of 49.8, also the highest reading in three months. On the other hand, employment fell 1.8 points to 49.3, a two-month low, and prices paid declined by 4.9 points to 52.1 in June, a six-month low and averaging 55.2 over the past six months. Also, inventories fell from 47.9 to 45.4, production slipped 1.7 points to 48.5, and backlog of orders declined from 42.4 to 41.7 in June, a seven-month low.
• ISM Services (Jul 3) – The ISM Services index unexpectedly dropped back into contractionary territory (a reading below 50) from 53.8 to 48.8 in June, the lowest reading since May 2020. According to the median forecast, the services index was expected to decline to a reading of 52.7. In the details of the report, business activity dropped 11.6 points to 49.6, the lowest reading since May 2020, supplier deliveries fell from 52.7 to 52.2, and employment ticked down from 47.1 to 46.1, averaging 47.7 over the past six months. Also, new orders declined by 6.8 points to 47.3 in June, the lowest since December 2022, prices paid fell 1.8 points to 56.3, a three-month low, backlog of orders dropped from 50.8 to 44.0, and the change in inventories decreased from 52.1 to 42.9 in June, the lowest reading since October 2021.
• Empire Manufacturing (Jul 15) – The Empire Manufacturing Index fell from 6.0 to -6.6 in July, the lowest reading since May and marking the eighth consecutive month of decline. According to the median forecast, the index was expected to decline to a reading of -7.6. In the details of the report, prices paid climbed two points to 26.5, the number of employees increased from -8.7 to -7.9, averaging a reading of -5.9 over the past six months, and new orders rose from -1.0 reading of -0.6. On the other hand, prices received dropped one point to 6.1, inventories fell from +1.0 to -6.1, a four-month low, and the six-month general business conditions index declined from 30.1 to 25.8 in July, a two-month low.
• Industrial Production (Jul 17) – Industrial production rose 0.6% in June, double the rise expected and following a 0.9% increase in May.
• Capacity Utilization (Jul 17) – Capacity utilization increased from 78.3% to 78.8% in June, a nine-month high.
• Business inventories (Jul 16) – Business inventories rose 0.5% in May, as expected and following a 0.3% increase the month prior.
• Philly Fed Business Outlook Survey (Jul 18) – The Philly Fed Business Outlook Index jumped from 1.3 to 13.9 in July, surpassing the expected gain to a reading of 2.9 and a three-month high. In the details of the report, prices paid fell from 22.5 to 19.8, a two-month low and averaging 17.4 over the past six months, while prices received jumped from 13.7 to a reading of 24.2 in June. Also, the number of employees rose from -2.5 to +15.2 in July, the highest reading since October 2022, and new orders gained from -2.2 to +20.7 at the start of Q3.
• Richmond Fed Manufacturing (Jul 23) – The Richmond Fed Manufacturing Index unexpectedly plunged from -10 to -17 in July. According to the median forecast, the index was expected to rise three points to a reading of -7. In the details of the report, the volume of new orders declined from -16 to a reading of -23, and shipments dropped from -9 to -21 in July. Also, capacity utilization fell five points to -13, the number of employees decreased by three points to -5, a two-month low, and wages fell from +21 to +15 in July, also a two-month low.
• Kansas City Fed Manufacturing (Jul 25) – The Kansas City Fed Index unexpectedly dropped from -8 to a reading of -13 in July, the lowest reading since May 2020. According to the median forecast, the index was expected to rise to -5. In the details of the report, employment dropped from -11 to -12, the lowest reading since June 2023, shipments fell from -1 to a reading of -18 and production decreased 1 point to -12, the lowest reading in three months. Additionally, the six-month outlook decreased by two points to +5 in July, and the volume of new orders dropped from a reading of -13 to -21, a five-month low. On the other hand, prices paid rose from +9 to +17 in the July report, a two-month high.
• Durable Goods (Jul 25) – Durable goods orders unexpectedly plunged 6.6% in June, the largest monthly decline since April 2020 and following a 0.1% increase in May. According to the median forecast, durable goods orders were expected to rise 0.3%. Year-over-year, headline orders dropped 10.3% in June, the third consecutive annual decline and the largest drop since June 2020.
• Transportation Orders (Jul 25) – Transportation orders fell 20.5% following a 0.6% rise the month prior, due to a 127.2% drop in civilian aircraft orders and a 0.1% decrease in vehicles and parts orders. Excluding transportation, durable goods orders rose 0.5% in June and increased 1.2% over the past 12 months, up from the 1.1% annual gain the month prior.
• Capital Goods (Jul 25) – Capital goods orders fell 18.4% in June following no change the month prior. Nondefense capital goods orders, meanwhile, dropped 22.4% following a 0.4% decline in May. Capital goods orders excluding aircraft and defense – a proxy for business investment – rose 1.0% in June, the most since January 2023. Year-over-year, business investment gained 0.4%, the strongest annual pace in three months. In other details, fabricated metals orders climbed 0.2%, and computers and electronics orders increased 0.8% in June. Also, electrical equipment orders rose 1.3%, and machinery orders increased 1.6%. On the other hand, primary metals orders fell 0.1% in June, the second consecutive month of decline.
• Dallas Fed Index (Jul 29) – The Dallas Fed Manufacturing Activity Index unexpectedly fell from -15.1 to -17.5 in July, a two-month low. According to the median forecast, the index was expected to rise slightly to a reading of -14.2. In the details of the report, employment gained from a reading of -2.9 to +7.1 in June, the highest reading since September 2023. Also, the six-month general business outlook index increased from +12.9 to +21.6, the highest since November 2021. On the other hand, new orders plunged from a reading of -1.3 to -12.8, averaging a reading of -4.7 over the past six months. Production fell from +0.7 to -1.3, and capacity utilization dropped from -4.8 to -10.0 in July, a six-month low.
• Chicago PMI (Jul 31) – The Chicago PMI fell from 47.4 to a reading of 45.3 in July, a two-month low. According to the median forecast, the index was expected to decline to 45.0 in July. In the details of the report, prices paid and supplier deliveries rose, signaling expansion, while production, inventories, new orders, employment, and order backlogs fell, signaling contraction.

Housing Market Activity

• Construction Spending (Jul 2) – Construction spending unexpectedly declined 0.1% in May following a 0.3% increase in April. According to the median forecast, construction spending was expected to rise 0.2%. Over the past 12 months, construction spending rose 6.4%, the weakest annual gain in almost a year.
• NAHB Housing Market Index (Jul 16) – The NAHB Housing Market Index declined one point to a reading of 42 in July, a seventh-month low.
• Building Permits (Jul 17) – Building permits rose 3.4% in June, pulling the annual pace up from 1.4M to 1.5M, a three-month high. Building permits were expected to increase just 0.1% at the end of Q2, according to Bloomberg. Single family permits fell 2.3% while multi-family permits rose 15.6% in June. Year-over-year, building permits fell 3.2% in June, the fifth consecutive annual decline.
• Housing Starts (Jul 17) – U.S. housing starts rose 3.0% in June, pulling the annual pace up from 1.3M to 1.4M, a two-month high. Starts were expected to rise 1.8%, according to the median forecast on Bloomberg. Single family starts declined 2.2% while multi-family starts jumped 19.6%. Year-over-year, housing starts fell 4.4% in June, the second consecutive annual decline.
• Existing Home Sales (Jul 23) – Existing home sales dropped 5.4% from 4.11m to a 3.89m unit pace in June, a six-month low. According to the median forecast, existing home sales were expected to decline 3.2% in June. Year-over-year, existing home sales fell 5.4% in June, down from the 2.8% annual decline in May and marking the 35th consecutive month of decline. Due to a fall in sales, the months’ supply of existing homes ticked higher from 3.7 months to 4.1 months, averaging 3.8 months over the past three months. Additionally, from a price standpoint, the median cost of a previously owned home climbed 4.1% in June from a year earlier to $427k, the highest on record.        
• New Home Sales (Jul 24) – New home sales unexpectedly fell 0.6% in June from 621k (revised up from 619k) to a 617k unit pace, a seven-month low. According to the median forecast, new home sales were expected to rise 3.4%. Over the past 12 months, new sales dropped 7.4%, the second consecutive annual decline. Due to a fall in new sales, the months’ supply of new homes rose from 9.1 to 9.3 months. From a price standpoint, the median cost of a newly constructed home rose 2.5% from the month prior to $417k, the highest in three months. Year-over-year, however, new home prices fell 0.1% in June.                    
• S&P/CS 20 City & National Index (Jul 30) – The S&P Case-Shiller 20 City Home Price Index increased 0.34% in May, more than the 0.30% gain expected and following a 0.39% rise in April. Meanwhile, the National Home Price Index rose 0.25%, the weakest monthly gain in five months. Over the past 12 months, the 20-city index rose 6.74%, a five-month low, while the national index gained 5.89%, also the weakest increase in five months.
• FHFA House Price Index (Jul 30) – The FHFA House Price Index was unexpectedly flat (0.0%) in May. According to the median forecast, the index was expected to rise 0.2%.
• Pending Home Sales (Jul 31) – Pending home sales rose 4.8% in June, the largest increase since December and following a 1.9% decline the month prior. According to the median forecast, pending home sales were expected to rise 1.5%. Over the past 12 months, pending home sales fell 7.8%, marking the 31st consecutive month of decline.

Trade and Currency

• U.S. Dollar (Jul 31) – The U.S. dollar fell in July following a rise in June as the Fed is expected to announce a first-round rate cut in the coming months. The dollar declined 1.7% for the month to close at $104.07.
• Trade Balance (Jul 3) – The U.S. trade deficit widened 0.8% in May to $75.1b, the largest since 2022. According to the median estimate, the deficit was expected to widen to $76.5b. In the details of the report, the value of goods and services exports fell 0.7% to $261.7b, while imports rose 0.3% to $336.7b
• Import & Export Prices (Jul 16) – Import prices were unchanged in June, despite expectations of a 0.2% decline, and export prices fell 0.5% at the end of the second quarter, more than the 0.1% decline expected. Over the past 12 months, import prices rose 1.6% and export prices rose 0.7%, both marking the largest annual increases since January 2023.

Monetary Policy, Reports, and Commentary

• Atlanta Fed GDPNow Forecast

o   (Jul 26) – According to the Atlanta Fed’s GDPNow forecast, GDP is expected to rise 2.8% in the third quarter, unchanged from the 2.8% rise in the second quarter.

• Fed Speak/News (Jul 2) – According to Chicago Fed President Austan Goolsbee, policy makers should prepare for rate cuts as inflation continues to improve. We are on "a path to 2%," Goolsbee said speaking on CNBC, underscoring confidence the data will justify the need to cut rates sooner than later. “If you just hold the rates where they are while inflation comes down, you are tightening — so you should do that by decision, not by default,” Goolsbee said. (Jul 2) – Federal Reserve Chairman Jerome Powell underscored the “progress” made towards reinstating price stability. Speaking in a panel in Sintra, Portugal, Powell noted, “We’ve made quite a bit of progress and in bringing inflation back down to our target.” At the same time, however, Powell was careful not to draw a direct line between improvements already made and the need to cut rates, insisting the Committee still needs further evidence of a sustained disinflationary path before an adjustment to policy would be warranted. “The last [inflation] reading and the one before it to a lesser extent, suggest that we are getting back on the disinflationary path. We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy,” Powell said. (Jul 9) – Testifying before the Senate Banking Committee, Federal Reserve Chairman Jerome Powell walked a delicate line, reiterating a fear that lowering interest rates too late or too little could put the economy and the labor market at risk, while recognizing that cutting rates too soon or too much could equally stall or reverse the disinflationary progress already achieved. While there has been progress made, Powell said more good data is needed to instill the needed confidence to justify a rate cut. “More good data would strengthen our confidence that inflation is moving sustainably toward 2%,” Powell noted. (Jun 17) – Richmond Fed President Thomas Barkin spoke to the Greater Prince George’s Business Roundtable, noting that he would like to move “deliberately” on interest rate reductions. (Jun 17) – Federal Reserve Governor Christopher Waller noted that the Fed was getting “closer” to cutting rates. Speaking at the Kansas City Fed, Waller said, “While I don’t believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted.” (Jun 24) – According to former New York Fed President Bill Dudley, the Fed should strongly consider cutting rates – potentially as soon as the July FOMC meeting. While the former Fed official obviously no longer casts a vote for the July policy decision, his comments were notable given he was a consistent advocate of a higher for longer scenario. “The facts have changed, so I’ve changed my mind,” Dudley wrote in a Bloomberg Opinion piece. “The Fed should cut, preferably at next week’s policy-making meeting.” According to Dudley, 1) given the slowing in labor market conditions, 2) a slowdown in spending “except for the upper income rung of the spectrum,” and 3) a 0.43 rise in the three-month average unemployment rate from its low point in the prior 12 months, near the threshold of 0.50 which suggests a forthcoming recession as indicated by the Sahm Rule, the Fed should begin to cut rates as soon as possible to avoid an unnecessarily sizable downturn. (The Sahm Rule identifies an onset of a recession when the three-month moving average of the national unemployment rate rises by 0.50 percentage points or more relative to its low during the previous 12 months.)

July 31st FOMC Meeting

·       As expected, the Fed opted to keep rates unchanged for the eighth consecutive meeting in a range of 5.25-5.50%. In the statement, the Fed noted that job gains have “moderated,” and while there has been a “rise” in the unemployment rate, the level of joblessness remains “low.” On the inflation front, there appears to be a more improved assessment, somewhat, among policy makers. “In recent months,” the statement reads, “there has been some further progress towards the Committees 2% objective,” but inflation still remains “somewhat elevated.” The Committee judges that the risk profile between its employment and inflation goals “continue to move into better balance,” although the statement stopped short of indicating such a balance has been met. As such, rather than focusing on just inflation risks, the Committee says it will be “attentive to the risks on both sides of its dual mandate.” Most importantly, the Committee reiterated a hesitancy to adjust policy without further evidence of a sustained disinflationary trend. “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

Domestic News and Activity 

• Politics and the Biden Administration (Jul 15) – Investors’ attention was diverted from the economy to politics with a failed assassination attempt on former President Trump at a campaign rally near Butler, Pennsylvania. According to reports, Trump was rushed to the hospital and after receiving treatment and was released the same night. President Biden released an address from the Oval Office, forcefully condemning political violence and called for “national unity” in these difficult times.  Early analysis suggests the odds of victory come November have shifted in favor of former President Trump in the aftermath of the attack with some even upping bets on the House shifting in favor of the GOP. Of course, regardless of who comes into office – whether it is a second-round Biden administration or a returning second-round Trump administration – either is going to face a number of lingering issues and challenges. The U.S. continues to face large budget deficits, a growing divide between asset holders and non-asset holders, a sizable labor shortage, rising prices, geopolitical and international risks – none of which will be immediately eradicated regardless of the outcome in November. (Jul 23) – Vice President Kamala Harris raised more than $100 million in just two days, including nearly $700,000 from first-time contributors. More importantly, the VP secured enough pledged delegates to begin her campaign uncontested and secure the Democratic nomination. Given President Biden’s departure from the presidential race, some market participants suggest the increased uncertainty now opens the door for further Fed policy action. Others argue the opposite; given the increased political unease, the Committee is likely to take less action in an attempt to appear apolitical. We would argue neither. Given the Fed’s autonomy from politics and the broader federal government, policy makers are likely to remain hyper-focused on the data and achieving their duel mandate of full employment and stable prices. 

International News and Activity 

·       Euro Area

o   (July 18) –The European Central Bank (ECB) opted to hold rates steady with its deposit rate at 3.75%, main refinancing rate at 4.25%, and marginal lending facility at 4.50% after lowering rates 25bps in June for the first time since 2019. The European economy has been sluggish for some time, with two consecutive quarters of negative growth at the end of last year. More recently, however, activity levels have improved, rising 0.3% in Q1 with expectations for an average 0.7% pace throughout the year. Meanwhile, inflation has slowed markedly in the Eurozone from a peak of 10.6% in October 2022 to 2.5% as of June. While the ECB’s decision to hold rates steady was widely anticipated, ECB President Christine Lagarde hinted at further relief to come later in the year despite the statement affirming the “Governing Council is not pre-committing to a particular rate path.” Speaking at the press conference following the statement release, Lagarde said, “The question of September and what we do in September is wide open and will be determined on the basis of all the data that we will be receiving…If that data actually confirms the disinflationary process that is at work in the moment, it will reinforce our confidence.” 

o   (Jul 30) – Euro area GDP gained 0.3% in the second quarter, surpassing expectations of a more muted rise of 0.2%. The solid showing was a reflection of a stronger-than-expected pickup in activity in France (+0.3%) and Spain (+0.8%), which was able to offset a 0.1% decline in Germany where inflation reportedly jumped to 2.3% in July on an annual basis, a two-month high.

·       China

o   (Jul 22) – The People’s Bank of China (PBOC) is the latest to join the ranks of those central banks around the globe now focused on cutting rates and removing policy firming. According to a statement from the PBOC, the move was aimed at "strengthening counter-cyclical adjustments to better support the real economy." Despite a number of stimulus packages enacted since the start of the year, the Chinese economy has struggled. According to China’s National Bureau of Statistics, GDP rose 4.7% year-over-year in the second quarter, missing expectations for a 5.1% gain and the weakest pace since Q1 2023. Inflation, meanwhile, rose 0.2% in June from a year ago, less than the 0.4% increase expected and the smallest gain since March.

·       Japan

o   (Jul 31) – The Bank of Japan (BOJ) raised interest rates for the second time since 2007. In a 7-2 vote, the BOJ raised rates 15bps to 0.25%, the highest level since 2008. Recall, back in March, the BOJ raised rates for the first time in 17 years from -0.1% to +0.1%.

-Lindsey Piegza, Ph.D., Chief Economist